The Hong Kong Insurance Authority (HKIA) has announced a cap on illustration rates for participating insurance policies, setting a 6% limit for Hong Kong dollar-denominated policies and 6.5% for those in other currencies. The new regulations will come into effect on July 1.
The decision has sparked some confusion on social media, with claims that the caps would limit actual policy returns. However, the HKIA clarified that the limits only apply to the internal rate of return used in benefit illustrations at the point of sale and do not restrict insurers from paying dividends above these rates.
In recent years, competition among insurers has intensified, with some companies offering overly optimistic projections that fail to account for market volatility and associated risks. This has created an expectation gap, where actual non-guaranteed returns fall short of what was promised in initial illustrations.
The HKIA hopes the new caps will curb aggressive sales practices and foster fairer competition within the sector. In response, the insurance industry has expressed support for the move and is now working to update systems and train intermediaries in line with the new requirements.
Additionally, the HKIA continues to engage with the sector on potential further regulatory measures related to participating policies. The authority encourages the public to review its online resources on participating policies and fulfilment ratios to ensure informed decision-making when purchasing insurance
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